Crypto Facing Legal Troubles While the SEC Prepares Its Coinbase Case

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The crypto market has found its feet once again in the past month or so, but a storm may be coming soon. Prices could be dropping as the SEC prepares to take action against Coinbase, one of the few legal exchanges left. It’s not the first time the SEC is preparing for a battle against a crypto entity. But, the legal showdown against Coinbase could have further repercussions and consequences on both sides.

A short time ago, the Securities Exchange notified Coinbase that it plans to sue the company for a wide range of violations of investor protection laws. It came out of the blue, and if successful, it could determine the future shape of the business. The suit comes in a very bad time for Bitcoin and the crypto market that seemed on the right track following a year or more being in bad shape.

‘Rife with Noncompliance’

Those are the exact words SEC’s chairman Gary Gensler used to describe the cryptocurrency exchange industry. He’s been a huge crypto opponent in the past and has a score to settle with crypto exchanges. Coinbase is the latest on his list in what will be a highly public case. If the exchange manages to keep its defiant stance and win its case, it could be a big blow for the SEC.

Of course, the crypto watchdog won’t sit idly and let it happen. It’s notorious for trying to hit crypto exchanges with legal action. After FTX’s demise, there aren’t too many exchanges left. Legal action against Coinbase could be a big blow for the crypto industry, and that’s the SEC’s plan all along.

FTX’s collapse late last year has put increasing pressure on regulators to crack down on the remaining exchanges. The SEC was glad to aggressively attack these companies, sometimes without much proof. Many have criticized the Commission for failing to spot FTX’s problems last year and the lack of investigation. That’s why it’s baffling why it’s looking into legal troubles for other exchanges, yet managed to fail in FTX’s case.

Massive Implications

According to Neel Maitra from Wilson Sonsini Goldman & Rosati, a blow to Coinbase could be a big problem for cryptocurrencies. Much of it will depend on the form of legal action the SEC takes. Gensler and the SEC have shifted focus to centralized exchanges late last year. The SEC instantly warned Coinbase not to let investors trade cryptos that should have been registered as securities in the same way stocks and bonds are.

Failing to comply with that insane regulation is the reason why the SEC took action against Coinbase, and a lawsuit is set to follow. Even if it’s months away, it could have massive implications on the crypto market. If the SEC is successful, Coinbase would have to restructure as a securities exchange, even when none of its coins are listed as securities.

It remains to be seen what will come out of it, but one thing’s for sure – the SEC can shatter the crypto industry with its crusade.

March 29, 2023: • No Comments

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